THE REPUBLICAN MESS

Ralph Sierra: “You may already have seen this.”

☞ It’s not the most nuanced 46 seconds – it’s shrill. But there’s a lot to be shrill about! The Republicans really did drive the country into the ditch! It may be unseemly to point that out, or hopelessly clichéd to underscore it with melodramatic music. But the choice we have to make 70 days from now could hardly be more stark.

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THE WAY OUT

Dan Stone, MD: “I agree with you that infrastructure spending is the way to address the anemic economy. It’s interesting to me that in the run up to the stimulus package, the Republicans criticized public spending as a way to address the recession, commenting that the Depression had been solved not by New Deal spending but by World War II. But they never seemed willing to take the next step and ask, what was it about World War II that addressed the economic ills of the Depression? It was sustained government spending [that dwarfed the deficit spending of] the New Deal! And, there’s nothing curative in building bombs and tanks. Infrastructure spending would have the same stimulating effect on the economy as war spending, but would improve our future efficiency as well. Unfortunately, the Obama Administration [forced to compromise with the Republicans] repeated the New Deal error of underspending. Like the New Deal, the stimulus improved a dire outlook but did not lead to a full recovery. Republicans want to address this by reducing taxes. But, as you suggest, why would reducing taxes on a profitable employer stimulate him to hire workers he doesn’t need?* And how will it help to go deeper into National Debt to cut personal taxes? Most of the lower taxes will go to paying down debt, building up saving, and buying Chinese-made goods. Admittedly, the problem of the budget deficit, cited by Republicans opposing more stimulus, is a real one. If only they would have realized the problem back when the Bush administration was cutting taxes for the wealthiest and taking us ever deeper into debt. But restoring the economy, the engine of national prosperity, is worth incurring debt.”

☞ Indeed, what other rational choice do we have?

*Cutting taxes wouldn’t help struggling unprofitable employers hire – those employers pay no tax. And if you’re small business owner who does pay a lot in taxes, cutting the rate actually makes it more expensive for you to hire. (Think about it. If you’re earning $700,000 a year, taxed on the margin at 35%, the after-tax cost to you of adding $100,000 to your payroll is $65,000. Right? If the effective rate went back to the Clinton/Gore 39.6%, then the after-tax cost to you of adding $100,000 to your payroll would be $60,400.)

Instead, President Obama proposed a $5,000 tax credit for each new worker hired (up to a total of $500,000 per business). That would bring down the cost of hiring new workers – even for struggling businesses. What actually passed was an exemption from the employer’s side of the Social Security payroll tax that cut the cost of a new hire by 6.2% – $3,000 on a $48,000 hire – plus $1,000).

TARGET THE TAX CUTS

What the Republicans want is an extension of cuts for those at the top. But they can’t come right out and say it. (“In these extremely difficult economic times, we want to keep borrowing from China in order to keep the Bush tax cuts on the wealthy that helped turn Clinton’s ‘surpluses as far as the eye can see’ into horrific deficits.”) So instead, they justify “making the tax cuts permanent” by pretending to champion small business and job creation.

But that’s bull. Here is White House view:

Extending High-Income Tax Cuts is the Wrong Answer for the Recovery
Posted by Christina Romer on July 28, 2010 at 03:20 PM EDT

President Obama has made it clear that he favors extending the 2001 and 2003 tax cuts for middle-income families, but letting those for high-income earners expire as called for in current law. Recently, some have argued that extending the high-income cuts is necessary for the economy. This is simply wrong.

. . . The Congressional Budget Office lists a tax cut for high-income earners as a particularly ineffective job creation measure. Private sector forecasters have reached the same judgment.1 The vast majority of economic research shows that higher-income earners spend less of a tax cut and so tax cuts to those earners create fewer jobs throughout the economy.2

That doesn’t mean that all tax cuts are ineffective in creating growth. In fact, tax cuts designed in the right way can be highly effective. That is why the President supported numerous tax cuts in the Recovery Act and why continuing the middle-class tax cuts from 2001 and 2003 is so important.

. . . If lawmakers are truly concerned about job creation, as they should be given the painfully high rate of unemployment, many approaches would be more cost effective than extending the Bush tax cuts for high-income earners. For example, a private sector study recently concluded that a third year of the Making Work Pay tax credit would be far more stimulative.1 Likewise, estimates by the Council of Economic Advisers suggest that spending $10 billion to prevent the layoffs of teachers, firefighters, and police would lead to nearly twice as many jobs as the estimated $30 billion of high-income tax cuts—that’s twice as many jobs for one-third the cost. The small business jobs bill currently before the Senate, which contains both targeted tax cuts for small businesses and measures to improve their access to credit, would also be a far more powerful and cost-effective way to stimulate economic growth and job creation.

It is ironic that many who are now arguing that the high-income tax cuts must be extended on stimulus grounds opposed the Making Work Pay tax credit [that] went to 95% of working families . . .

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